There’s an undeniable shift occurring in the employer landscape. Against a backdrop of growing inflation, a challenging economic climate and the highest healthcare premium increases in over a decade, businesses have been forced to not only trim their workforce but are also starting to phase out employee perks and reduce benefits to mitigate financial risk. As we approach 2024, employers face a pivotal challenge: How to continue offering valuable benefits amidst escalating costs.
The current reality employers are facing
A soaring inflation rate has cast a shadow on businesses, ramping up costs across the board, from essentials like healthcare to more indirect expenses like customer acquisition. Such economic pressures can deplete a company’s financial reserves, driving them to tighten the belt on expenditures. However, the story doesn’t end with inflation. The looming hike in health insurance costs is a formidable adversary. Forecasts from benefits consulting firms, Mercer and Willis Towers Watson, suggest employer coverage costs could escalate by approximately 6.5% this year. This surge could intensify the financial strain on employers already grappling with the challenge of providing healthcare benefits, which currently average over $14,600 annually per employee. The gravity of the situation is further underscored by a daunting prediction: nearly 90% of business leaders foresee employer-sponsored healthcare becoming untenable within the next seven years.
The CAA and another layer of complexity for employers
In the intricate dance of balancing budgets without compromising essential benefits, the Consolidated Appropriations Act of 2021 (CAA) introduces yet another layer of complexity for employers. Now, they’re not just juggling financial constraints and employee well-being but also navigating the nuanced fiduciary obligations set by the CAA. While ERISA clearly dictates that the liability for CAA compliance rests squarely with the employer or its designated “plan fiduciary,” managing these obligations amidst an inflation crisis is tough. Employers must now champion the dual cause of both safeguarding the interests of their employees in health plan decisions and ensuring meticulous cost management for their business.
With budgets on the line—will healthcare be the next benefit cut?
As budgetary concerns mount, many are questioning: Will healthcare be the next benefit on the chopping block? A closer look at the broader corporate landscape—from the tech corridors of Silicon Valley to the financial hubs of Wall Street and extending to the thousands of small businesses across the U.S.—reveals a trend. Lavish perks to attract top talent—free dry cleaning, massages, yoga and on-site ice-cream bars—are increasingly rare.
Amid these changes, one thing remains consistent: the value employees place on healthcare. A study from the Employee Benefit Research Institute underscores this, revealing that 88% of employees prioritize employer-provided health insurance above all other benefits. Sacrifice this, and the repercussions are clear: decreased engagement, plummeting morale and a potential mass exodus of talent. While the challenges are daunting, and employers face tough decisions, the solution might not lie in cutting benefits. Instead, it might be time for a strategic rethinking of how benefits are delivered.
How employers can balance comprehensive coverage and cost
Over the past 15 years, 82% of Fortune 500 companies have transitioned from traditional insurance carriers, sidestepping hefty premium-induced carrier profit margins and lack of transparency and choice. Historically, when considering health insurance, the majority of small-to-midsized employers have opted for fully insured plans, mainly due to financial predictability. But with market dynamics evolving, it might be the cue for smaller entities to explore self-funding their employee healthcare claims.
The savings
With self-funding, employers gain ownership of their healthcare data, enabling them to analyze trends and make informed decisions to fine-tune their plan year over year. This level of control allows business owners to continually optimize their healthcare offerings, ensuring better outcomes and cost efficiency for their organization and employees. And—employers only pay for actual claims, keeping 100% of unused claim dollars—a key difference in fully insured vs. self-insured health plans.
The experience
The savings potential for self-insured employers is major, but the stakes are higher. Here’s the silver lining: some self-funded health plan designs integrate healthcare navigation, proactively guiding employees to high-quality, lower cost providers. Healthcare navigators can even help employees access hospital savings, seamlessly connecting them with hospital financial assistance programs. The savings employees reap on healthcare directly benefit a self-funded employer’s bottom line.
The CAA compliance
For employers considering or already on the path of self-funding, some self-funded plan partners are stepping up to the plate, offering integrated solutions that not only keep them compliant with the CAA but also drive down healthcare costs. These partners, equipped with tools and actionable insights, aid employers in making informed healthcare purchasing decisions, ensuring alignment with both the employees’ best interests and the stipulations of the CAA. In essence, while the post-CAA landscape might seem like a tightrope walk for employers, the right self-funded plan partner can turn it into an opportunity—optimizing costs while upholding fiduciary responsibilities.
You can also choose your own PBM!
In a standard fully insured health plan, employers often lack the autonomy to select their Pharmacy Benefit Manager (PBM). This setup grants the insurance carrier the authority over plan design, including PBM selection. Unfortunately, many of the big PBMs focus on maximizing rebates rather than helping employers save on drug costs. By adopting a self-funded plan approach, employers gain the flexibility to choose a PBM that offers specialized cost-saving measures, including potential discounts on specialty drugs, or clinical saving guarantees.
Instead of reducing employee benefits, employers can restructure them more efficiently through self-funding, ensuring both cost-effectiveness and quality care for their workforce. It’s a call for companies to recalibrate, focusing not on lavish perks but on genuine, value-driven benefits. It’s an invitation to make smart cuts, all while signaling to their workforce that their well-being remains paramount.
Michael Waterbury
Michael Waterbury is CEO of Goodroot, a community of companies reinventing health care one system at a time.
Steve Palma
Steve Palma is president of Sola Health, a Goodroot community company that delivers next gen health plan experiences.
